Study Paints Somber Worldwide Pension Picture

The disturbing look at
the ailing worldwide retirement plan space – severely
damaged by weak markets and stagnant economies – comes from
the latest Cerulli Edge report from Cerulli Associates.
“Occupational and individual pension savings schemes –
plans that traditionally have formed the bedrock of asset
management industries worldwide – have been crushed by
three years of negative markets returns,” Cerulli
researchers wrote.

With corporate pension plans in the largest DB markets –
the US, the UK, Japan, and the Netherlands – underfunded by
at least $800 billion, the Cerulli researchers said
corporate sponsors needed to pump $120 billion into
their plans immediately, “plus substantial sums going
forward to bring pension funds back to full funding
levels.”

Cerulli noted that the rampant problems in the
retirement plan system have at least partly cooled calls
for privatizing pensions through investment of Social
Security funds into the markets and that many governments
are increasingly eyeing benefits cuts “as an increasingly
viable alternative to deficit spending on retirement
provision.”

Cerulli’s survey of pension problems around the globe
included observations that:

Swiss government officials are expected to release
a pension reform plan soon, as well as a study of the
risks of the current pension funding system. The
officials are also expected to review the pension
return guaranteed by law – recently cut from 4% to
3.25%. Swiss plan sponsors have also been more willing
to commit resources to alternative investments – at
least 5% in private equity and hedge funds for the
Swiss versus between 1% and 2% for the average European
plans.

A significant issue in the German retirement plan
market is the Riester Pension, which went into effect
in January 2002 and supplements statutory pension
plans. It is subsidized by the state. The German
government established a study commission in November
2002 to look into pension financing issues.

DC plans are becoming increasingly popular in
Japan “as Japan’s corporate pension crisis continues.”
According to a recent survey quoted by the Cerulli
researchers, 361 DC plans got government approval by
the end of March 2003 – a 30% increase from the month
before. One reason for the increase are plans allowing
small-and mid-sized companies to become part of a
common plan structure with a predetermined fund menu –
a comparatively cheap alternative.